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Jul 25, 2022

Qualcomm (QCOM) Earnings Preview July 2022

By:Ryan Sullivan

Key Takeaways

  • QCOM integrated circuit products are used mainly in mobile phones, wireless data access cards and infrastructure equipment.
  • Recent price action has taken us to a 50% retracement between QCOM’s all-time high price and the low of 2022.
  • Positive net income growth that coincides with sales growth, while also increasing total assets and keeping total liabilities in check, is an ideal position for QCOM to be in.
  • July 2022 earnings report represents an opportunity to sell premium neutrally and directionally out of the money.

What does Qualcomm do?

Qualcomm Inc. (QCOM) designs, manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access (CDMA) technology. The products include CDMA-based integrated circuits and system software for wireless voice and data communications as well as global positioning system (GPS) products. Qualcomm's business is organized into two reporting segments as follows: Qualcomm CDMA Technologies (QCT) and Qualcomm Technology Licensing.

QCT reports operating results for sales of CDMA-based integrated circuit devices (chips) and system software for wireless voice and data communications, as well as GPS products. QCT's integrated circuit products are used mainly in mobile phones, wireless data access cards, and infrastructure equipment. QTL reports revenues received from licenses to the intellectual property portfolio, which comprises various patent rights used in the manufacture and sale of wireless products, including Wideband Code Division Multiple Access technology solutions.

Fig. 1: Six-month price percent change chart for QCOM and SPY.


How has QCOM been trading?

QCOM posted its all-time high price of $193.58 on January 5th, 2022, and is currently trading at $155.44, down 19.7%. Technically, QCOM has been in a downtrend for the majority of 2022, posting lower lows and lower highs.

July has been a very positive month for QCOM. In the last three weeks QCOM has rallied more than 23 points. QCOM posted its 2022 low on June 23rd, 2022, at $118.23, and is currently up 36.87 points from that price.

The price action over the last three weeks has taken us to a 50% retracement between the all-time high price and the low of 2022. Given the rally over the last three weeks that has tested and broken through resistance, it is likely that in the near term we will now move down again to test support.

How do QCOM’s financials look?

The last five quarters of income statements look positive for QCOM. In that time, we have seen sales grow from $7.9 billion to $11.1 billion. During that same period, net income grew from $1.7 billion to $2.9 billion. This upward trend is positive news for QCOM and indicates recent growth. This is what we want to see from QCOM to facilitate constructive growth for QCOM’s valuation.

Qualcomm’s balance sheet over the last five quarters is also showing growth. In the last five quarters QCOM’s total assets have grown from $37.1 billion to $44.3 billion. During that same period total liabilities grew from $29.7 billion to $30.9 billion. This ratio between total asset growth and total liabilities growth is encouraging to investors. QCOM is adding additional assets at a greater rate than at which they are adding additional liabilities. We want to see asset growth with low liability growth.

Positive net income growth that coincides with sales growth, while also increasing total assets and keeping total liabilities in check, is an ideal position for QCOM to be in. This information informs investors that the business QCOM conducts is profitable over the last five quarters.

It is possible that the recent rally in July for QCOM is indicative of positive earnings news on the horizon. It is also possible that the current price of QCOM is pricing in any positive news for QCOM, including success over the last year.

How should I trade QCOM earnings?

Based on recent price action and past earnings reports, it appears that QCOM is currently well priced, and that price has accounted for economic conditions and how well QCOM has been able to navigate its industry recently.

After a rally like what we have experienced in QCOM over the last three weeks, we usually look for a reversal move next that tests new support levels. Over the next seven days we will likely see a down move. However, we often see rallies precede earnings reports, and we could see QCOM continue to this rally until earnings are reported next week.

It is also likely that we will remain around this new price level in the near term. The $147 to $157 price level appears to be a new range that QCOM will want to transact at before moving to a new range.

Implied Volatility (IV) is currently above 50 in August and above 48 in September options. If you want to play earnings, trading the August options is preferable. A wide strangle or iron condor is a good option if you believe we will continue to trade around the current range through earnings. If you believe we have rallied too far, a directional out-of-the-money spread will work well for you.

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